Bigger loans anticipated this mortgage season
Multiple rate cuts will boost borrowings.
After two rate cuts in the first eight months of the year, new research suggests the average size of home loans will increase significantly over the next few months.
The Reserve Bank of Australia (RBA) cut rates in May and August, bringing the official cash rate to a record low 1.5% ahead of the upcoming mortgage season (September-November 2016).
Research by finder.com.au reveals the current average national home loan is $360,100. The average first home buyers loan is around $335,000.
Following May's rate cut to 1.75%, average loan sizes increased 3.6% in June, while first home buyer loans have risen around 1.57% each time the RBA cut rates in the last five years.
Based on these figures and recent trends, average loan sizes are anticipated to increase by 1.8% or $6,480 in the next few months, while first home buyer loan sizes are expected to grow by $5,260.
However, there's plenty of potential for disaster with interest rates this low. Borrowers, particularly first home buyers, may feel confident increasing their budgets now but affordability will play a huge role if rates rise again.
Earlier this week, we reported steady rises in both housing loans and building approvals, however, some analysts suggest the bubble may be about to burst.
A home loan is a long-term commitment that often requires a conservative approach. When applying, compare a range of lenders and give yourself a buffer of around 2-3% to accommodate for any future rate hikes.
You can also use a calculator to estimate how much you can comfortably afford to borrow.
Australian mortgage holders and those seeking loans are missing out on potential savings when they don't bargain for lower interest rates on home loans. 82% of Aussies who ask for a discount get one.
Visit our RBA cash rate page for all the latest news, updates, tips and forecasts for tomorrow's interest rate announcement.
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